NEW YORK, May 4 (Reuters) - Vanguard Group Chief Executive Officer Bill McNabb said on Thursday that Morgan Stanley had decided to stop selling its mutual funds because the largest U.S. brokerage by salesforce wants "to be compensated for being on their platform in one way or another, and that's something we just won't do."

McNabb told CNBC that paying fees to brokerages to distribute its funds raises an "inherent conflict."

Morgan Stanley said on Wednesday it would drop funds from the largest U.S. mutual fund firm in an effort to get rid of under-performing and less popular funds.